Mumbai: Rating agency Crisil Ltd on Thursday said it downgraded more companies in the first half of this fiscal year than it has upgraded.
Crisil’s credit ratio, or the ratio of upgrades to downgrades, declined to 0.66 in the six months ended September from 0.91 in the second half of the previous fiscal year “primarily on account of slowdown in economy,” the agency said in a ratings roundup.
“However, with pressure on profitability and on economic growth showing signs of abating, Crisil believes that the credit ratio has begun to bottom out,” it said in a statement.
Material improvement in credit ratio will, however, need time and a substantial revival in demand. In the near term, rating downgrades will continue to outnumber upgrades, although their severity and intensity may decline, Crisil said.
But it also sees profitability of companies stabilizing, helped by softening commodity prices.
India’s economic growth picked up marginally to 5.5% in the quarter ended June from 5.3% in the preceding quarter. Crisil forecast India’s growth in this fiscal year at 5.5% and expects this to improve in 2013-14.
“Renewed confidence in growth will drive improvement in the working capital situation for corporates, and therefore, support credit quality,” said Ramraj Pai, president of the rating agency.
In the first half of the fiscal year, Crisil downgraded 484 companies, including seven AA rated firms, and upgraded 320, whereas in all of fiscal 2012, the agency downgraded 562 companies, Crisil analyst Somasekhar Vemuri said in a conference call with the media.
“The downgrades were driven largely by slowing demand and pressure on liquidity, because of stretched working capital cycles,” it said.
Of the downgrades this year, 183 were in the “default” category—companies expected to default on their bank loans. The upgrades, on the other hand, were supported by improved business performance due to stabilization of past capital expenditure, and consequently, improved cash flows, Crisil said.
Around one-third of the downgrades were of companies in highly indebted industries—power, construction, engineering and capital goods and textiles. The highest upgrade rates were in retail consumption linked sectors, such as packaged foods and home furnishing, the rating agency said.